Sticky' Behaviors

New frugality may endure; private label likely to continue to take share from brand

NEW YORK -- A "new frugality," born of The Great Recession and evidenced by two consecutive years of declining per capita consumption, is now becoming entrenched consumer behavior that is reshaping consumption patterns in ways that will persist even as the economy rebounds, according to a new survey of 2,000 U.S. consumers from Booz & Co. This new spending report confirms a picture of pervasive retrenchment in consumer spending that spans a broad range of consumer product categories. But the survey also suggests that increased frugality may have become learned behavior, making [image-nocss] many Americans more cautious and discerning consumers.

Another study conducted this past fall by Booz & Co. in collaboration with the Grocery Manufacturers Association, "Shopper Marketing 3.0" found shoppers conducting research before they shop, with a focus on finding the best prices, clipping coupons and reading circulars for what is on sale. The shift to private-label products has accelerated and shows no signs of slowing down, and private labels are likely to continue to take share from brand names. The move to lower price points overall, while pervasive, is not universal, however. Generally, shoppers are opting for lower-priced brands in apparel, household products and food. But they are less inclined to "trade down" when purchasing alcoholic beverages, tobacco and health and beauty products.

The study (
click here for the full report) also suggests that these behaviors are "sticky," and unlikely to quickly change as the economy shows signs of improvement. For example, in the next 12 months just 9% of consumers intend to spend at pre-recession levels on household products, 10% on mobile phone service, 11% on health and beauty products and 18% on apparel, clothing, and shoes. Moreover, nearly two-thirds (64%) of consumers say they will shop at a different store with lower prices even if it is less convenient for them.

"Frugal behavior is now considered trendy by many shoppers, and will continue for years to come," said Matt Egol, a Booz & Co. partner. "In this changed environment, marketers need to develop deeper insights into shopper attitudes and behaviors in order to better align their product, pricing and marketing communications strategies."

Evidence from the study of changed consumer attitudes includes:
Approximately two-thirds of the respondents (65%) say they now consider saving to be more important than spending, and that they frequently use coupons. More than half (55%) say they would rather get the best price than the best brand. More than half of consumers surveyed reduced discretionary spending on a range of categories, including dining out (58%), consumer electronics (53%), apparel (53%) and media and entertainment (51%). Only one-third (32%) of respondents believe that their household financial status over the next 12 months will change for the better, reinforcing focus on frugal shopping behaviors such as deferring spending, trading down to lower price points or buying their favorite brands during promotions.

Several other consumer behaviors characterize the "new frugality." Shopping itself is less impulsive and more disciplined. Recession-habituated shoppers are more inclined than ever to do research before going to the store. This was especially true, the survey revealed, in three categories: Health & Beauty (83%), Household Products (82%) and Food & Beverage (79%).

Another study conducted this past Fall by Booz & Co. in collaboration with the Grocery Manufacturers Association, "Shopper Marketing 3.0" (
click here for to view the full report) found a comparable proportion of shoppers conducting research before they shop, with a focus on finding the best prices, clipping coupons and reading circulars for what is on sale. The "Shopper Marketing 3.0" study also found that many shoppers use price breaks to justify buying the brands they love.

The shift to private-label products has accelerated and shows no signs of slowing down. In fact, Booz & Co. analysis shows that private labels are likely to continue to take share from brand names. Said Egol, "Retailers are unlikely to give brands back the shelf space that private label has taken given their dependence on private label for profits. In addition, consumers are reporting generally positive experiences when trying private labels, so for some consumers they are becoming preferred brands."

The move to lower price points overall, while pervasive, is not universal, however. Generally, shoppers are opting for lower-priced brands in apparel, household products and food. But they are less inclined to "trade down" when purchasing alcoholic beverages, tobacco and health and beauty products.

Not surprisingly, big ticket items will continue to see the biggest household spending cuts: In the past year consumers continued to defer expenditures for items like consumer electronics (only 22% made purchases) or home improvements (23% made purchases). These behaviors will continue in 2010; only 13% and 17% respectively said they would revert to pre-recession buying habits in these categories.

The survey sheds light on the challenges faced by consumer marketers and retailers emerging from the recession. Specifically, faced with the same basic economic trends, consumers are behaving differently with respect to their attitudes toward value and loyalty. Booz & Co. identified six distinct, new consumer segments that can help interpret how customers shop in terms of brand loyalty, retail format loyalty, and online behaviors. These segments range from "Shopper 2.0" (young consumers who tend to buy online, regardless of product category, who are price sensitive with few brand or store format loyalties) to "Loyalists" (largely male, who are loyal to both brands and the stores where they shop, but are also avid users of the Internet for research and buying).

"This more cautious consumer approach to spending began even before the recession came into full swing but has since picked up speed," said Booz & Co. partner Andrew Clyde. "As manufacturers lured consumers with new promotions, consumers traded down and liked the experience. As the economy recovers, marketers need to better target their strategies to preserve the value of existing brands, and avoid destroying value through too blunt a competitive response across segments."

For retailers and consumer products manufacturers, Booz & Co. identifies specific areas to spur growth and profitability coming out of the downturn:
Building marketing strategies and tactics that address where and why consumers shop, rather than relying too heavily on demographics-based approached used for advertising buying. Determining differences in consumer behavior across product categories, offline vs. online shopping occasions, and specific retailers/etailers. Differentiating marketing messages and promotional offers to more price conscious consumers vs. those who place greater value on brand or convenience. Engaging shoppers along the full path to purchase, rather than treating online and in-store interactions as silos.